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3 Great Emerging-Markets ETFs

The ratings for passive investments in the diverse emerging-markets category are often lower than those in other categories. This is one of the few categories where active managers often have the advantage, which is a big part of the rationale.



However, there are several excellent index-tracking possibilities to take into account in the long run.


Great Emerging-Markets ETFs: 3 of Them

  1. 01.) iShares MSCI Emerging Markets Min Vol Factor ETF EEMV
  2. 02.) Vanguard Emerging Markets ETF VWO
  3. 03.) iShares Core MSCI Emerging Markets ETF IEMG
Under the ticker EEMV, the first emerging-markets ETF is the Silver-rated iShares MSCI Emerging Markets Min Vol Factor ETF.

For a variety of reasons, stocks listed in developing countries are typically riskier than their developed-markets equivalents. But EEMV softens the blow by methodically selecting lower-risk stocks and combining them in a way that reduces volatility. This indicates that it typically outperforms the whole emerging-markets universe during drawdowns but is likely to underperform during bull markets.



The give and take tends to wash out in the long run. With around 20% less risk, its long-term total return frequently resembles that of the market. That it has done so consistently is encouraging for its future risk-adjusted performance.

The next two ETFs for today share many characteristics in common but have a significant distinction. Bronze-rated iShares Core MSCI Emerging Markets ETF (ticker: IEMG) and Vanguard Emerging Markets ETF (ticker: VWO), both of which capture the whole emerging-markets universe for less than 10 basis points per year in expenses, are also available.

Despite these commonalities, each ETF gives the markets it identifies as emergent a slightly different filter. Since VWO follows a FTSE index that categorises South Korea as a developed market and defines Korean stocks as emerging markets, they are not included in VWO's portfolio. Korean stocks are included in IEMG since they satisfy MSCI's requirements for developing markets.




The one is not superior than the other. Although both are excellent long-term investments, this is a crucial point to take into account when comparing these ETFs to other developed-markets mutual funds or ETFs you may already have in your portfolio. Every ETF should be paired with its corresponding developed-markets ETF, as a general rule. Thus, IEMG performs best when paired with an ETF tracking an MSCI index, while VWO should be paired with one monitoring a FTSE index.

This can help you maximise the diversification potential of Korean companies by avoiding overweighting or underweighting Korean stocks in your larger investing portfolio.

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